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URL:  https://boards.fool.com/pretty-pathetic-to-say-that-buying-undervalued-34297076.aspx

Subject:  Re: how's this for income investing Date:  9/17/2019  3:30 PM
Author:  aj485 Number:  36651 of 36686

Pretty pathetic to say that buying undervalued bonds is similar to taking advantage of devastated people who have just lost everything material, (and in too many cases still getting over the loss of loved ones), living in school gymnasiums or in tents on other public land, wearing donated clothes, eating red cross meals; by offering them some crumbs with the sole intent of reaping a nice fat profit.

Except that the claims weren't purchased from individuals. They were purchased from insurance companies, and were claims that PG&E owed to the insurance companies when they declared BK. From the WSJ article https://www.wsj.com/articles/klarmans-baupost-poised-to-cash... that was referenced in the article you linked to (my bolding):

The exact amount Baupost stands to make couldn’t be learned. As of March it owned $2.5 billion in insurance claims, according to court documents. It bought the claims at steep discounts as early as last year from insurers anxious to shift the wildfire losses off their books, the records show.

Regulatory records from one major insurer, CSAA Insurance Exchange, say Baupost paid 30 cents on the dollar to 35 cents on the dollar for a significant number of California wildfire claims in late 2018 and early 2019, as it rolled up a stake in PG&E insurance claims.


Since PG&E declared BK, at least in part, in order to limit what they would have to repay to the insurers, please explain how this is any different than buying undervalued bonds. Baupost was willing to take a risk that the BK court would pay the insurance company's claims more than Baupost had paid for the claims, and the insurers didn't want to wait for the BK court to resolve the claims. It could have gone the other way, with Baupost paying 30 - 35 cents on the dollar for the claims, and only receiving 10 - 15 cents from the BK court. In that case, the insurers would have been the ones who 'won'.

AJ
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